How much can you risk?
How much of our capital can we risk on a trade? The general rule is not more than 2% of our risked capital. How do we calculate it? It is quite straightforward. Let's assume we have RM50,000 risked capital. 2% of RM50,000 is RM1,000.
Let's work out an example using the TENAGA potential pullback trade shown earlier?
Let's assume we want to buy TENAGA at RM8.15 and set our stop-loss at RM7.85. How many shares of TENAGA can we buy to limit our risk to 2%?
Potential loss per share = RM8.15-RM7.85 = RM0.30
No of shares = RM1,000/RM0.30 = 3333 shares
We round it off to 3,000 TENAGA shares. That is how much TENAGA shares we can buy to limit our potential loss to less than 2% of our risked capital. We obviously can buy less, which would reduce our risk even more but our potential reward would reduce too!
Disclaimer:
Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and information presented in this blog.
Let's work out an example using the TENAGA potential pullback trade shown earlier?
Let's assume we want to buy TENAGA at RM8.15 and set our stop-loss at RM7.85. How many shares of TENAGA can we buy to limit our risk to 2%?
Potential loss per share = RM8.15-RM7.85 = RM0.30
No of shares = RM1,000/RM0.30 = 3333 shares
We round it off to 3,000 TENAGA shares. That is how much TENAGA shares we can buy to limit our potential loss to less than 2% of our risked capital. We obviously can buy less, which would reduce our risk even more but our potential reward would reduce too!
Disclaimer:
Trading and investment involves risk, including possible loss of principal and other losses. I shall not be responsible for any losses or loss profit resulting from trading or investment decision based on my posting and information presented in this blog.
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